- Apple stock came close to being valued at $3 trillion, but the milestone was never reached. Could it happen in 2023?
- AAPL may get there if the economy and the markets at large behave well. The required 42% rally in a single year has not been as rare as some may think.
- If investors are not in too big a hurry, then I think that $3 trillion is a matter of time. I present a few drivers that could push the market cap past this landmark.
Apple Stock: So Close, Yet So Far
Apple stock has come so close to being valued at $3 trillion in market cap that sometimes I forget that the company’s equity has never quite gotten there.
On January 3 last year, Apple was valued at $2.97 trillion. This was the closest that shares of the Cupertino company have been to the milestone. From there, the stock price tumbled 33% in one year, when the market value dipped slightly below $2 trillion at one point last week.
AAPL: 42% Climb To $3 Trillion
In order to finally be the first company to breach the $3 trillion mark, Apple would need to see its equity value rise by 42% – from the current share price of $133 to around $189 (this assumes no change in share count).
It may sound like aggressive expectations, but such a vicious rally could fully unfold in 2023 alone. Historically, AAPL has produced single-year returns of 42% or more 14 times out of 42 years, a whopping one-third of the time (once every three years, on average).
Pay Attention To The Economy First
For Apple stock to be valued at $3 trillion later this year, I believe that the economy and the equity markets will have to play a crucial role.
As I explained recently, “if the economy is growing, unemployment is low, inflation is under control, credit access is easy and fairly cheap, companies are investing in their operations and consumers are spending, virtually every corporation and their stocks will do well.”
This is what positive correlation is all about: one overarching theme (e.g., the economy) having a similar impact across a number of similar assets (e.g., stocks).
For Apple, reaching a market cap of $3 trillion effectively means returning to an all-time high, and not too much more. But if 2023 witnesses a recession, lingering inflation, stubbornly high interest rates, rich oil prices, severe geopolitical disruptions, or a combination of the above, it is highly unlikely that AAPL will be able to get to the milestone quickly.
To be fair, Apple stock has been suffering from supply chain issues lately, which helps to explain the underperformance of about 15 percentage points relative to the S&P 500 (SPY) in the past three months alone. Should worries ease, AAPL is likely to rebound.
But again, in terms of the $3 trillion target, we are looking at much more than just a bounce off a 52-week low. Apple stock probably needs more to support longer-lasting momentum.
Could $3 Trillion Come After 2023?
If investors are in no particular hurry to see AAPL reach $3 trillion, then the task at hand might be much easier to accomplish.
Given enough time, and assuming Apple remains the tech powerhouse that it has become in the iPhone era, $3 trillion will very likely come to fruition. For example, annual returns of no more than 15% over a period of only three years are enough to do the trick.
I believe what could send Apple beyond $3 trillion by the end of 2025, for example, are any of the following:
- Successful entry in the AR and VR worlds, first through the launch of a mixed reality device. One is expected to be announced as early as the spring of 2023.
- The development of an autonomous vehicle system in partnership with an automaker – or, who knows, even the launch of an Apple Car. This will probably be a longer-term initiative that is unlikely to move the share price meaningfully this year.
- A recovery in the services segment, which recently registered pitiful YOY revenue growth of only 5% (see chart below). Morgan Stanley once estimated that, due to the massive installed base combined with a very high lifetime value-to-customer acquisition cost ratio, Apple’s subscription business alone might be enough to push the share price beyond $200.
